[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Proposed Rules]
[Pages 38289-38291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18330]



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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket Nos. RM95-8-000 and RM94-7-001]


Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities and Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities; 
Notice of Fixed Charge Rate Methodology

Issued July 14, 1995.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking and supplemental notice of 
proposed rulemaking; notice of fixed charge rate methodology.

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SUMMARY: The Federal Energy Regulatory Commission's notice of proposed 
rulemaking in this proceeding in footnote 403 (60 FR 17662 at 17720, 
April 7, 1995) referred to the representative transmission fixed charge 
rate of 17.5 percent. This notice demonstrates the derivation of that 
rate.

DATES: Comments on the proposed rule are due on or before August 7, 
1995; reply comments are due on or before October 4, 1995.

FOR FURTHER INFORMATION CONTACT:
David D. Withnell (Legal Information), Federal Energy Regulatory 
Commission, Office of the General Counsel, 825 North Capitol St., N.E., 
Washington, D.C. 20426, Telephone: (202) 208-2063
Patricia M. Alexander (Technical Information), Office of Electric Power 
Regulation, 825 North Capitol Street, N.E., Washington, D.C. 20426, 
Telephone: (202) 208-0750

ADDRESSES: Send comments to: Office of the Secretary, Federal Energy 
Regulatory Commission, 825 N. Capitol St., NE, Washington, DC 20426.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in Room 3104, at 941 North 
Capitol Street, N.E., Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing (202) 208-1397. To access CIPS, set your communications 
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400 or 1200bps, 
full duplex, no parity, 8 data bits, and 1 stop bit. The full text of 
this document will be available on CIPS in ASCII and WordPerfect 5.1 
format. The complete text on diskette in WordPerfect format may also be 
purchased from the Commission's copy contractor, La Dorn Systems 
Corporation, also located in Room 3104, 941 North Capitol Street, N.E., 
Washington, D.C. 20426.
Docket No. RM95-8-000: Derivation of 17.5% Fixed Charge Rate

    The following narrative describes the fixed charge rate referenced 
in footnote 403 in the Stage One implementation section of the NOPR and 
explains the basis for the Commission's proposed uniform fixed charge 
rate of 17.5%.
    A fixed charge rate is the ratio of a utility's annual fixed costs 
[depreciation, return (overall and on equity) on investment, taxes, and 
operating and administrative expenses] to its investment (plant-in-
service). To determine the annual fixed costs of providing transmission 
service, the fixed charge rate is multiplied by the 

[[Page 38290]]
original cost of transmission investment. This number is then divided 
by the capability of the transmission system to compute an annual rate 
for transmission service stated in $/kW. Charges for shorter periods 
can be derived from this figure, e.g., a monthly rate would be computed 
by dividing the annual rate by 12.
    Annual fixed costs can be calculated using either a levelized or 
nonlevelized fixed charge rate. With a levelized fixed charge rate, the 
capital recovery component of the rate does not vary from year to year. 
Instead, the rate is designed using essentially the same method used to 
develop fixed-rate home mortgage payments, i.e., the monthly payment 
does not vary. Most of the monthly payment reflects interest (return on 
investment in the context of utility rates) in the early years, and 
most of the monthly payment reflects principal repayment (depreciation 
in the context of utility rates) in the later years. In contrast, 
nonlevelized rates decline over time. In the early years of a 
facility's life, nonlevelized rates will be higher than levelized rates 
and, in the later years of the facility's service life, nonlevelized 
rates will be lower than levelized rates. However, under either 
approach, the utility recovers, on a net present value basis, the same 
total revenues. See Maine Public Service Company, 71 FERC para. 61,249 
(1995).
    As explained in the NOPR, the levelized fixed charge method used by 
many utilities and the Commission is available on the Commission's 
Bulletin Board in spreadsheet format. This method is the basis for both 
of the Stage One options proposed in the NOPR. One option uses the 
levelized fixed charge method to compute a company-specific 
transmission cost using company-specific Form No. 1 data.
    The other option uses a uniform 17.5% fixed charge rate for all 
companies. The 17.5% rate is based upon an average of the results of 
suspension analyses \1\ over the last two years using the levelized 
fixed charge method to evaluate public utility filings involving either 
transmission service or the transmission component of a power sale.\2\ 
For those filings, the Commission's preliminary fixed charge rate 
analyses ranged from 13.3% to 29.8% and the arithmetic average was 17%. 
The arithmetic average of the common equity returns reflected in those 
fixed charge rates was about 10%.

    \1\ If the Commission's preliminary review of a rate filing 
indicates that it may not be just and reasonable, the Commission can 
suspend the rate for up to five months and set it for hearing. The 
preliminary analysis used to determine the need for a hearing and 
the appropriate length of any suspension period is called a 
suspension analysis.
    \2\ The Appendix contains a list of those filings.
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    For purposes of Stage One implementation, the Commission proposed 
setting the fixed charge rate at 17.5% to reflect the fact that current 
equity returns (and related income taxes) are somewhat higher than the 
preliminary equity returns used in the surveyed analyses.
Lois D. Cashell,
Secretary.

                Appendix--Transmission Fixed Charge Rates               
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                                                            Transmission
            Company                     Docket No.          fixed charge
                                                              rate (%)  
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Arizona Public Service Co.....  ER94-1681-000                      17.18
Atlantic City Electric Co.....  ER93-927-000                       21.75
Boston Edison Co..............  ER95-108-000                       17.64
Black Hills Power & Light Co..  ER94-1542-000                      15.65
Carolina Power & Light Co.....  ER95-10-000                        14.04
Central Illinois Public         ER94-1611-000                      14.64
 Service Co.                                                            
Central Maine Power Co........  ER94-1153-000                      17.88
Commonwealth Edison Co........  ER95-5-000                         16.13
Consolidated Edison Co. of New  ER94-1666-000                      22.05
 York.                                                                  
Dayton Power & Light Co.......  ER94-1469-000                      17.78
Delmarva Power & Light Co.....  ER94-1501-000                      16.52
Duke Power Co.................  ER94-1429-000                      16.77
Edison Sault Electric Co......  ER94-1502-000                      20.63
Energy Operating Co.'s........  ER94-1440-000                      15.91
Fitchburg Gas & Electric Light  ER94-1203-000                      13.34
 Co.                                                                    
Florida Power Corp............  ER95-100-000                       15.46
Green Mountain Power Corp.....  ER95-84-000                        20.11
Idaho Power Co................  ER94-1231-000                      14.94
Interstate Power Co...........  ER94-1346-000                      14.82
Kentucky Utilities Co.........  ER94-1678-000                      15.45
Louisville Gas & Electric Co..  ER94-1480-000                      14.75
Madison Gas & Electric Co.....  ER94-1147-000                      14.25
Maine Public Service Co.......  ER94-1481-000                      21.81
Midwest Power Systems.........  ER94-1278-000                      15.29
Minnesota Power & Light Co....  ER94-1556-000                      17.61
Mississippi Power & Light Co..  ER94-1306-000                      16.43
Missouri Public Service Co....  ER94-1692-000                      17.34
Montana Power Co..............  ER94-1189-000                      17.96
New England Power Co..........  ER94-1338-000                      18.37
Niagara Mohawk Power Corp.....  ER94-1641-000                      20.96
Northern States Power Co.'s     ER94-1622-000                      19.95
 (Wisc./Minn.).                                                         
New York State Electric & Gas   ER95-108-000                       17.65
 Corp.                                                                  
Ohio Power Co.................  ER94-1555-000                      19.02
Oklahoma Gas & Electric Co....  ER94-1266-000                      15.06
Orange & Rockland Utilities     ER94-1262-000                      29.83
 Inc.                                                                   
Otter Tail Power Co...........  ER94-1147-000                      17.90
PacifiCorp....................  ER94-1233-000                      13.54

[[Page 38291]]
                                                                        
Pacific Gas & Electric Co.....  ER94-1430-000                      17.75
Pennsylvania Electric Co......  ER94-1436-000                      18.53
Pennsylvania Power & Light Co.  ER94-1398-000                      16.62
Potomac Electric Power Co.....  ER94-900-000                       18.20
Portland General Electric Co..  ER93-462-000                       16.10
Public Service Co. of Oklahoma  ER94-949-000                       15.06
Public Service Co. of Colorado  ER95-88-000                        15.08
Public Service Electric & Gas   ER93-667-000                       18.21
 Co.                                                                    
Puget Sound Power & Light Co..  ER94-528-000                       16.39
Rochester Gas & Electric Corp.  ER94-1279-000                      20.13
Sierra Pacific Power Co.......  ER94-1195-000                      12.20
Southern California Edison Co.  ER94-1608-000                      17.48
South Carolina Electric & Gas   ER95-104-000                       16.04
 Co.                                                                    
Southwestern Public Service Co  ER94-1152-000                      14.07
Texas-New Mexico Power Co.....  ER94-1326-000                      14.11
Tucson Electric Power Co......  ER94-1424-000                      13.50
Washington Water Power Co.....  ER94-183-000                       13.50
Western Resources, Inc........  ER94-1010-000                      15.24
West Texas Utilities Co.......  ER95-245-000                       16.78
Wisconsin Electric Power Co...  ER94-1626-000                      16.15
Wisconsin Power & Light Co....  ER94-1204-000                      16.73
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[FR Doc. 95-18330 Filed 7-25-95; 8:45 am]
BILLING CODE 6717-01-P